Wednesday, 4 April 2018

Gov’t likely to introduce new taxes… as businesses call for it

The Chief Executive Officer of Dalex Finance, Ken Thompson and
the National Health Insurance Authority are urging the government to introduce
new taxes to cater for its expenditure.

The government, which with all indications is heavily cash
strapped, has resorted to borrowing excessively to even cater for consumptions
needs. With Infrastructure and statutory expenditures left unattended to.

Ken Thompson has thereby cautions the government to introduce new taxes if only
it wants to be prudent with its spending.

Speaking at the CIMG’s “A Conversation with Ken”, Mr. Thompson stated that
Ghana’s debt level has reached an alarming rate, a situation that could create negative
effects on the economy and throw the government’s One District One factory
programme out of alignment with planned spending.

“We have a situation where Ghana’s income is being spent on three items. We are
spending on wages and salaries, interest expense and statutory deduction. Once
those three items have been paid for there is nothing left,” he said.

He observed that government is currently not investing in capital expenditure
that will have the ability to pay for loans acquired to invest in such areas.

“What we are doing is funding recurrent expenditure like electricity, petrol,
uniform for police. All those things are being funded with debt. That is not
sustainable. We need to say cut. We need to cut and now recalibrate and asked
how are we getting out of this situation,” he stressed.

He gave his plain diagnosis of the state of Ghana's
macroeconomy, describing it as frail.

Speaking at the CIMG-hosted event, Ken Thompson engaged in a hypothetical
conversation with the Finance Minister, Ken Ofori-Atta where he sought to show
that the cedi was overvalued using the Big Mac Index -- published by The
Economist to measure purchasing power parity (PPP) between two currencies.

According to the Dalex Finance CEO, the overvalued cedi made Ghanaian exports
expensive and non-competitive, while imports were relatively cheap.

He notes that this development results in stunted economic development and
unemployment.

Ken Thompson makes the case that the trickle-down effect of the overvalued cedi
will jeopardize most, if not all government policies including the“Planting for
Food and Jobs” programme.

He said, the polices are likely to be non-competitive because of the overvalued
cedi.

Ken Thompson argues that the state of Ghana’s economy started experiencing challenges
since 2017.

“We spent almost 100% of all our revenue including grants on three line items
as follows: compensation to employees, interest payments, and, statutory
payments, example GETFund, District Assemblies Common Fund, and NHIS."

Mr Thompson also raised concerns over the rise in government expenditure which
he described as worrying.

“Since we spend over 100% of our revenue on these 3 items, all our other
expenditure is done from monies borrowed. We are borrowing to fund consumption
and not to fund investment.

"Our debt is piling up (70% of GDP), and, we may not be in a position to
repay in future. Even before then, any natural or man-made disaster could send
us into a default tailspin of government obligations causing intolerable
hardship, widespread business failures, and mass unemployment,” he stated.

Making some recommendations, Mr. Thompson pointed out that
government will have to take some tough measures and face the reality.

“We can do three things. We can either increase income, we can cut expenditure
or we can do both. But the situation we have now is not sustainable. What I am
proposing is that one of the ways by which we can increase income is to
increase taxes across board, for a short period— let’s say three years,” he
suggested.

He maintained that the country is currently broke, a situation that possess
economic danger to the financial stability of the country.

Mr. Thompson added that the cedi was overvalued using the Big Mac Index —
published by The Economist to measure purchasing power parity (PPP) between two
currencies.

He argued that the situation has made imports cheaper compared to exports,
creating a situation that may stifle government’s one district one factory
programme due to cheap imports.

Meanwhile, managers of the National Health
Insurance Scheme (NHIS) are also proposing a percentage of tax to be imposed on
alcoholic beverages in order to manage the scheme.

According to Upper East Regional Director of the Authority, Sebastian
Alangpulinsa, the pro-poor policy was introduced in 2003 for resident Ghanaians
to seek health care without financial constraint.

He, however, said the scheme is struggling due to financial constraints to meet
its growing demand.

It is against this backdrop that the authority is proposing a tax on alcoholic
beverages to enable it to settle its arrears.

The director made this known during an end -of- year performance review meeting
underway at the Ghana Health Service In-service Training Center.

The managers are also proposing a tax on cigarette and sugar as well as a
percentage of Ghana’s oil revenues for more funds.

Deputy Upper East Regional Minister, Frank Adongo Fuseini entreated organized
labour to dialogue with workers to come out with suggestions on a proposed 1
percent from employees basic salary and 2 percent from employers to sustain the
scheme.

Mr. Adongo challenged staff of the Authority to step-up their activities in
registering the poor population of the region.

Some deserving district managers in the region were given awards in recognition
of their performance for the past year